An alternative to the traditional family farming model is farm leasing or renting. Farm lease models can provide a way to expand your operation and increase economies of scale without investing in land, which can be cost prohibitive.
Leasing land in Australia has been a proven and popular model for farmers to gain access to increased tracts of land, without having the huge capital outlay. However, leasing of farmland in Australia is an under-utilised form of land tenure when compared with the high rates of leasing in England and Wales; and in the USA (Agrifutures, 2011).
Farm leasing can be beneficial for the landowner and lessee in the following ways:
Expand your business without the huge upfront capital cost of buying land
Operators may not be in a position to accumulate farmland of their own and/or they can meet their farming goals without having to own the land on which they are operating. Leasing may also free up additional capital to spread your risk portfolio over other off-farm investments.
Enables you to better match your resources to land under operation
Leasing enables a reduction in costs per hectare as fixed costs are spread over a larger productive land area. This includes equipment, machinery and labour costs. Increasing scale enables farmers to therefore achieve greater levels of efficiency in their business, as although overheads may increase, the overall cost of production should decrease.
Enables a form of income for the landowner
For the lessor, a lease can provide a steady parcel of cash for land that is either unused or underutilised (whether that be because of stage of life, personal reasons or change in business focus).
Transition tool for older and younger farmers
Leasing can enable an existing landowner to scale back operations, while giving someone else the opportunity to scale theirs up. This may be part of the succession planning process within a family or involve an unrelated party.
The resources within this toolkit provide guidance on different farm leasing arrangements, spreadsheets to calculate a lease rate, tips in preparing a lease agreement and improving farm lease contracts, and improving tenant-land holder relationships.
This Farm Lease Toolkit includes the following key sections: